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Small businesses, many of them owned by people of color, are bearing the brunt of the COVID-19 pandemic. If we do nothing differently, Philadelphia’s economy will be less diverse and equitable than before.
But in crisis there is opportunity, and the time is now to set plans in motion. Our robust sector of anchor institutions — hospitals, universities, utilities, sports teams, headquartered major corporations — has helped lift the region out of every downturn in the past 50 years. As the coronavirus outbreak exacerbated preexisting inequities and inequalities, it also revealed fundamental weaknesses in institutional supply chains.
How our anchor institutions spend money in the immediate aftermath of COVID-19 could be the linchpin of an equitable post-pandemic economy — and to building a more resilient region for the future.
Currently, these institutions spend billions of dollars a year on goods and services from suppliers outside the region. Some organizations, led by the University of Pennsylvania starting in the mid-90s, have done laudable work localizing and diversifying their supply chains. And two years ago, a group of major “eds and meds” institutions came together under the Economy League’s PAGE (Philadelphia Anchors for Growth and Equity) initiative to create a platform for aggregating demand, with the aim of providing opportunities to tap into the local marketplace.
Yet there is a bottleneck on the “supply” side. Too many local firms simply lack the capacity and access to the right kinds of capital to achieve scale and compete for institutional contracts.
When the crisis ends, pent up demand means those positioned to take advantage will prosper. We must be intentional, now, to help small local businesses prepare for the recovery phase. How? A combination of enhanced managerial capacity and access to equity capital.
Our local ecosystem is lacking a business development program specifically tailored to institutional supply chains — and it lacks adequate capital resources for those firms with the capacity to achieve scale.
As Economy League research has shown, 99.7% of local businesses employing the majority of the region’s workforce are small by federal guidelines. Given that the overwhelming majority of firms owned by people of color are small, we are in real danger of emerging from this pandemic with far fewer of them. And since “minority”-owned firms are more likely to hire Black and Latinx workers than white-owned firms, we’re also in danger of creating more structural labor market dislocation along racial and ethnic lines.
Since business formation and growth are a critical pathway to wealth creation in the U.S., a significant contraction in minority business ownership will be tantamount to increasing the already substantial racial wealth gap, in Philadelphia and the nation.
If the region is to capitalize on this crisis and emerge with a more robust, equitable and resilient local business sector, we must start working on recovery now.
Here are three things we can be doing to ensure small firms owned by a diverse array of Philadelphians are ready to hit the ground running.
Organize the region’s institutional demand
By bringing together our eds-and-meds institutions, locally-anchored private corporations, and major governmental entities.
We can work to integrate the excellent localization and diversification initiatives at Penn, CHOP, Drexel, Jefferson, and Temple (founding partners in the Economy League’s PAGE initiative) with those in the private sector.
Comcast and Exelon, PECO’s parent company, are members of the Billion Dollar Roundtable for best-in-class supplier diversity programs in excess of $1 billion in annual tier-one spend; Aramark reports that its supplier diversity program produces nearly $2 billion a year in impact.
Support biz development programs tailored to institutional supply chains
Modern workforce development makes an effort to match skill-building to the needs of firms that are actually seeking employees. We need to do the same kind of matching with capacity-building at small firms — creating programs that help local business owners learn how to handle institutional demand and do work with supply chain professionals at our anchor institutions and corporations.
The Economy League has proposed such a program in partnership with the African American Chamber of Commerce of Greater Philadelphia and the Greater Philadelphia Hispanic Chamber of Commerce, and the City of Philadelphia’s recently completed Poverty Action Plan endorsed such a program.
Successful execution will require cross-sector collaboration and substantial philanthropic support.
Create an MBE Venture Capital Shop to ensure access to equity capital
For decades, most MBEs have operated at the margins of the financial sector, generally accessing loans from community development financial institutions (CDFIs).
While CDFIs do incredibly valuable work, the balance sheet of the average MBE is laden with debt, which hinders growth. As Della Clark at The Enterprise Center has noted, white-owned firms generally achieve scale through attracting equity capital, ownership positions taken by investors. On The Enterprise Center’s 30th anniversary in October 2019, Clarke announced the launch of the Innovate Capital Initiative, aiming to raise $50 million to capitalize several Qualified Opportunity Funds to become MBE equity shops.
The pandemic and its disproportionate impact on MBEs has created a new sense of urgency to help Clark and others build this capacity now. Philadelphia’s growing impact investing community seems like a logical place to advance this critical mission.
Let’s seize the moment and use this crisis as an opportunity for transformation!